China Drugmakers Rally on Tax Breaks for Rare-Disease Drugs

(Bloomberg) -- Chinese pharmaceutical stocks jumped after the government said it plans to expand tax breaks to rare-disease treatments and speed the approval process for cancer drugs.

The CSI 300 index of health-care stocks traded in Shanghai and Shenzhen advanced 3.1 percent on Tuesday, to the highest level in two months. Kangmei Pharmaceutical Co. surged 10 percent. In Hong Kong, Genscript Biotech Corp. rose 4.7 percent and Wuxi Biologics Cayman Inc. added 1.5 percent.

The value-added tax on 21 drugs for rare diseases will be cut to 3 percent from March 1, according to a statement from the State Council after an executive meeting. Premier Li Keqiang reiterated the government will speed the approval of new cancer drugs, lower prices and include more such treatments into the country’s medical reimbursement system.

“It’s good news for both domestic and international makers for rare disease drugs,” said Jialin Zhang, a senior health-care analyst with ICBC International Research Ltd. in Hong Kong. “We expect international drug makers will benefit more from the tax cut because they are running ahead on developing drugs for rare diseases.”

The move is the latest effort by China to introduce new medicines more quickly and cheaper in the world’s second-biggest pharmaceutical market, as a growing middle class seeks access to better drugs and health care. The government is racing to get access to top treatments as China faces some of the highest rates of cancer, diabetes and liver disease in the world.

Urgently Needed

China’s drug regulator announced a list of 48 foreign drugs that were urgently needed last year and that it’s looking to approve if certain requirements are met, an agency representative told official state television CCTV in January. In December, it approved an anemia treatment from AstraZeneca Plc and FibroGen Inc. ahead of the U.S. and other markets.

The policy on rare-disease drugs followed tax breaks enacted last May that cut value-added tax for all domestically produced cancer-fighting medicine to 3 percent from 16 percent. The government also applied zero duty to imported drugs, including alkaloid treatments with anti-cancer effects, and proprietary Chinese medicines, from the previous range of 3 percent to 6 percent.

To contact the reporter on this story: Daniela Wei in Hong Kong at jwei74@bloomberg.net

To contact the editors responsible for this story: K. Oanh Ha at oha3@bloomberg.net, Jeff Sutherland, Sharon Chen

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